What every company director should know about Bankruptcy and insolvency

Bridgetown - Caribbean corporate executives are being urged to update their knowledge of financial risks, solvency, bankruptcy laws and regulations.

This advice is coming from the Caribbean Corporate Governance Institute (CCGI).

In a presentation outlining what every director needs to understand about their company making a profit and being able to meet its financial obligations, the CCGI noted that there have been many changes within solvency and bankruptcy laws and regulations, particularly in Trinidad and Tobago. While noting the importance of being aware of the laws within the home country, CCGI says it is also prudent to know the bankruptcy laws and regulations in countries where customers and suppliers are located.

“It is no longer sufficient for a director to simply ask – ‘what’s the bottom line – are we making a profit or not,’ without exception, every director needs to understand the nature of financial risks for the company,” said Dr Axel Kravatzky, Chairman of CCGI.

Speaking directly to the role of company directors, Dr Kravatzky warned: “Do not abdicate your fiduciary duty as a director and rely blindly on the other board members to carry out financial assessments.”

Insisting that “Every Director needs to understand financial statements”, executives were encouraged to make regular use of financial ratios and know how to make basic analyses and interpretations.

According to Dr Kravatzky, “Board Directors need to understand the ratios of their own organizations and those of their creditors.”

With respect to financial risks, he said, “The board as a whole needs to determine the areas of risk and financial management that are significant and establish policies. In addition, risk appetite and tolerance thresholds should be determined by the board” and recognition must be given to the fact that “different stakeholders will have different perspectives on risk”.

As such, CCGI warned companies against looking at issues from only one dimension and suggested an examination of risks from the perspective of solvency risk, liquidity risk and profitability risk.

Directors were also encouraged to consider the impact of capital leverage and be aware of how much the risks of potential insolvency vary according to the proportion of capital raised in debt or equity.

Barbadians can benefit from the CCGI in the upcoming board certification workshop November 11 and 12 at the Hilton Hotel.